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Review Your Home Insurance Policy in the New Year to Avoid Issues

Credit: Drazen Zigic via Freepik

In the long list of New Year’s resolutions you can make, reviewing your home insurance may not be one that springs immediately to mind. However, it is a necessity, especially if you have either lived in your home for a long time, recently remodeled, or have purchased new items such as furniture, electronics or jewelry.

No one likes paying more in insurance premiums, but you could wind up facing a much steeper bill if your home is damaged by a fire or flood and you do not have adequate coverage. Reviewing your home insurance policy can help you avoid being underinsured in the face of a loss. These tips can help you prepare and find a better insurance policy that accurately reflects your needs, especially when these needs have recently changed.

#1 Create a Home Inventory

A home inventory is an absolute must-have before you review your home insurance, and it can be a massive relief if you ever do need to make an insurance claim. A home inventory is a comprehensive list of all of your personal belongings. It is even better if you also have receipts for everything, and you can see just how much your belongings are worth.

If you ever have a dispute with the insurance company, a home inventory can help insurance public adjusters or insurance lawyers working with you negotiate with the insurance company and get a more accurate settlement.

#2 Check the Details of Your Insurance Coverage

There are two important terms when you want to know if you have enough home insurance: Guaranteed Replacement Cost and Actual Cash Value. The type of coverage you have can make a big difference in how much you receive if a fire or flood damages belongings in your home.

Guaranteed Replacement Cost coverage should provide you with enough funds to replace lost belongings and repair the structure of your home up to the limit specified in your policy. This covers the full cost of belongings without depreciation.

For example, in a fire, you lose a sectional that you have had for several years which shows some natural wear and tear, but the same sectional today costs $2,000. Your insurer should provide $2,000 to replace it, although deductibles and policy limits can complicate things.

Actual Cash Value provides funds to replace the lost or damaged belonging, minus depreciation. In other words, the insurance company will pay roughly what you could expect to get if you sold the belongings second-hand just before the loss. This can mean you receive a substantially lower amount of money from your insurance claim.

#3 Are Your Policy Limits Up to Date?

Insurance policies usually have an upper limit for what they will pay out. In the case of a total loss, such as a house fire destroying your home, your costs may exceed your policy limit.

It is important to know how much you stand to lose in a total loss. This can change as life goes on, you accumulate new things, buy new furniture and electronics, acquire valuables like jewellery or art, expand your family, and remodel your home.

If your costs exceed your policy limit, you will either have to make do with less or pay out of pocket to replace everything. While you may be able to forego some belongings without too much pain, when it comes to structural repairs, it can cause issues with your mortgage lender when you have insufficient funds to repair or rebuild the home.

Limits may apply to different types of coverage. For example, you may have a separate limit for structural repairs, contents, and valuables. If your limits are too low, talk to your insurer about extending them.

This New Year, do not wait for an accident to find out you were underinsured. Review your home insurance and adjust your policy accordingly to avoid potential headaches and financial loss when a loss occurs.